The industry’s open secret is that fully 40% of all rebates never get redeemed because consumers fail to apply for them or their applications are rejected, estimates Peter S. Kastner, a director of consulting firm Vericours Inc. That translates into more than $2 billion of extra revenue for retailers and their suppliers each year. What rebates do is get consumers to focus on the discounted price of a product, then buy it at full price. “The game is obviously that anything less than 100% redemption is free money,” says Paula Rosenblum, director of retail research at consulting firm Aberdeen Group Inc.

What this old article fails to point out is that it’s often not the consumer’s fault who forget to send in rebates. Sure, we’re sometimes lazy to do the paperwork for a $5 discount, but you would dot it for $100, wouldn’t you? Yet it’s often the ugliness of the rebate process with built-in traps (did you cut out the UPC code from the right corner on the box, did you circle the right amount..etc), or just the ignorance of the rebate processing company (yes, that is a thriving business in itself) that robs you of your rebate check. And don’t for a minute think it’s only from Tiger Direct and other retailers who thrive on the rebate-scam. Brand-name trusted vendors aren’t any better. Since we’re discussing the Palm here, here’s my rebate experience from Handspring (the former Pal-spinoff that later reunited with the parent) from a few years ago:

Sent in not only paperwork, but an actual, working older Palm III as trade-in unit (This condition was so ridiculous, later Handspring changed it to providing serial no’s of the trade-ins.) The $100 rebate never arrived, not even after numerous phone-calls and emails. They demanded copies of everything, which I sent – but how do you copy the trade-in unit? My loss: $100 rebate, $50 trade-in value for the old Palm (that’s what it sold on eBay at the time), postage and about a full day of my time fighting the bureaucracy.

Did that stop my from buying Handspring / Palm products? Not when they were the only game in time, so I bought two more Treo’s. But guess what: Palms are not the only choice if you want a smart phone, and obviously I am still not a Palm-fan…

Back to the angioplasty, one way to streamline rebate processing is to make it an all-online process, removing the intentional hurdles. I can’t see why in the 21st century this is such a big deal. Costco sets a positive example, with simple online rebate entry, prompt payment, and online audit available for years.

But the real angioplasty would be to kill the the whole process. Forget rebates, it’s time for true transparency: call it what it is, $299 or $199, if you want to promote your product, provide a temporary discount, but forget rebates, which are just a Big Fat Lie.

Update: It’s nice to see others are waking up to the fact the rebate scheme is really a scam: